The Mandatory Provident Fund (MPF) is a compulsory retirement protection scheme in Hong Kong that was launched in December 2000. It replaced previous retirement schemes governed by the Occupational Retirement Schemes Ordinance. Under the MPF, both employers and employees are required to make contributions to employees' retirement funds. The Mandatory Provident Fund Schemes Authority regulates and supervises the MPF industry to ensure compliance.

1. Financial Planning for Retirement
(Questions 3.1 – 3.14)

2. Question 1:
What is the Mandatory Provident Fund,
when was it launched, and what pension
schemes were in place before the launch
of the MPF?

3. Mandatory Provident Fund (MPF)
 Compulsory retirement scheme in Hong Kong
 All employers in Hong Kong have to join
 Implemented on 1st December 2000
 Both employers and employees contribute to the fund
 If your monthly salary is above $6500, the current
contribution rate is 5% of salary, with a cap of $1000.
 Employer will choose a MPF provider.
 Employee can choose a fund offered by the MPF
provider.
 Employee will receive the benefits upon retirement.

4. Mandatory Provident Fund (MPF)
(continued)
Before the implementation of MPF:
 Only some (not all) companies offer retirement benefits to
their employees
 Different employers have different retirement schemes.
 It is governed under ORSO. (Occupational Retirement
Schemes Ordinance)
 Source: Hong Kong Fact Sheet: MPF Sheet
 http://www.gov.hk/en/about/abouthk/factsheets/docs/mp
f.pfd

5. Q3.2 Who supervise the MPF
industry?
HKSAR
Government
MPFA
MPF ORSO

6. MISSION
O Established in September 1998
O Under Mandatory Provident Fund Schemes Ordinance
O To ensure the provision of retirement protection for Hong
Kong's workforce

7. Role
O to be responsible for ensuring compliance with the MPFSO;
O to register provident fund schemes as registered schemes;
O to approve qualified persons to be approved trustees of
registered schemes;
O to consider and propose reforms to the law relating to
occupational retirement schemes or provident fund schemes;
O to exercise such other functions as are conferred or imposed
on the MPFA by or under the MPFSO or any other Ordinance.

8. • All employees and self-employed people aged 18 or above and below age
65
e.g, regular employees who are employed for a continuous period of not
less than 60 days either full-time or part-time,
casual employees who work in the catering or the construction industries,
and are employed on a day-to-day basis or for a fixed period of less than 60
days, or
those who earn an income from the production or trade of goods or
services, in a capacity not as an employee (i.e. self-employed).
• Residing and working in Hong Kong or,
• Hong Kong resident employed from Hong Kong working overseas for a
limited period and engaging in business which is sufficiently connected to
Hong Kong, and a person who is employed in Hong Kong but working
outside Hong Kong temporarily.
• Source: http://www.gov.hk/en/about/abouthk/factsheets/docs/mpf.pdf
http://www.mpfa.org.hk/eindex.asp

9. • Those who are covered by statutory pension or provident fund
scheme
e.g. civil servants who receive pension, judicial officers and teachers
in subsidized schools
• Employees covered by occupational retirement scheme
• People from overseas who get permission to work in HK
• for less than 13 months / who are not members of retirement
scheme in HK
• Those who work in European Union Office
• Domestic Helpers
• Self-employed hawkers
Source: http://www.gov.hk/en/about/abouthk/factsheets/docs/mpf.pdf

10. Q3.4:Basic Concepts
• Relevant income: all payments in monetary terms, but
excluding severance payments and long service payments
• Calculation: 5% of relevant income, subject to the
maximum of $20,000 and minimum of $6,500 per month
• MPF salary cap: Contribute up to $1000 for both
employer and employee

11. Example
• Supposed you earn $12,000 monthly for your first
job…
Your contribution = $12,000×5% = $600
• Supposed you earn $22,000 monthly after a salary
increase…
Your contribution = $20000×5% = $1000
Reference:http://www.mpfa.org.hk/english/abt_mpfs/abt_mpfs_fms/abt_mpfs_f
ms_con/abt_mpfs_fms_con.html

12. Q3.5 MPF Trustee and MPF
Service Provider
• Approved MPF trustees are responsible for the
administration and management of MPF schemes.
• They have to comply with the provisions of the MPF
legislation
• Monitor legislative changes and evaluate their effects on
the to administrate the fund
• Conduct valuations of fund assets
• Prepare accounts and to audit reports
• They may delegate part of their functions to other service
providers.

13. Number of MPF trustee
registered with the MPFA
• As at 25 Feb, there were 16 approved
trustees.
• American International Assurance
Company (Trustee) Limited
• AXA China Region Trustees Limited
• Bank of East Asia (Trustee) Limited
• ING Pension Trust Limited
• http://www.mpfa.org.hk/english/reg_use/re
g_use_amt/reg_use_amt.asp

14. • ‘Q3.6 MPF Intermediaries are…
• people who are engaged in
– Selling MPF schemes; or
– provides advices to clients on constituent funds
or underlying approved pooled investment funds
of MPF schemes
• excludes lawyers, professional accountants or actuaries

15. • 29,555 registered MPF intermediaries(31 Jan)
― 482 corporates
― 29,073 individuals
Retrieved from:
http://www.mpfa.org.hk/english/quicklinks/quicklinks_sta/quicklinks_sta_sh.html

16. • Regulators
• Mandatory Provident Fund Schemes Authority
(MPFA)
• Hong Kong Monetary Authority (HKMA)
• Securities and Future Commission (SFC)
• Insurance Authority (IA)

17. Question 7
What is the Employee Choice Arrangement and why has
it been proposed?

18. Employee Choice Arrangement
 Allows employees to choose the MPF provider as well as the
different types of MPF funds.
 Aims at lowering the admin fees charged by MPF providers.
 When there is more competition among MPF providers, it
creates pressure and forces the MPF providers to lower the
fees.
 Originally scheduled to come into effect in April 2011
 Government has postponed it and it is now expected to
come into effect in the second half of 2012
 From: MPF Choice Put Back to July 2012.
 http://topics.scmp.com/news/hk-news-watch/article/MPF-choice-put-back-to-July-2012

19. Question 3.10
How has the MPF performed over the past year, over the
past five years, and/or since it was launched?

20. MPF Past Performance
 Total net asset value of all MPF schemes: HK$365.4billion (as at
December 2010)
 The average annual rate of return since inception (2000) is 5.4% (net of
admin fees)
 Compared to the annualized composite CPI percentage for the same
period: 0.7%

21. MPF Past Performance
 The average annual rate of return for different types of funds:
Types of funds Rate of return in Rate of return
2011 since inception
(2000)
Mixed Asset Fund 8.7% 4.9%
Equity Fund 10.2% 5.7%
MPF Conservative 0.0% 1.2%
Fund
Guaranteed Fund 2.2% 1.6%
Bond Fund 3.9% 3.9%
Money Market Fund -0.4% 0.8%
- Equity Fund consistently outperformed other funds.
- Money Market Funds performed the poorest.
Source: http://www.info.gov.hk/gia/general/201106/22/P201106220300.htm

22. Q3.11 Fund Expense Ratio (FER)
-What ? How?
% of all expenses in an asset fund
e.g. Administrative, management, advertising (12b-1fee in US)
EXCLUDE brokerage commissions, foreign exchange losses,
taxes
Another Factor influencing FER:
- size of the fund (small funds have higher FERs)
FER (=1% per annum) means that each year 1 % of the fund’s
total assets used to cover the expenses
NOT necessary to show the Ratio for funds with less than 2 years
FER (%) = direct expense (%) + underlying fund costs (%) +/- any adjustments
permitted or required by the Authority in any individual case

23. 3/5/2012
Fund Risk Indicator (FRI)
 Definition: An indicator of the risk of your MPF fund (The
higher the FRI, the higher the risk).
 Measurement: An annualized standard deviation based on
the monthly rates of return of the fund over the past 3 years
to the reporting date of the fund fact sheet.
 Importance: A strong relationship between the level of risk
and the likely returns over the longer term.
 Reminder: The risk indicator is of most value when making
comparisons between funds ---- relative risk.

24. 24
Reference
 http://cplatform.mpfa.org.hk/MPFA/english/glossary.jsp#fer
 http://www.mpfa.org.hk/english/leg_reg/leg_reg_cod/files/Dis
closure_Code_4th.eng.pdf
 http://en.wikipedia.org/wiki/Expense_ratio
 http://www.mpfa.org.hk/english/leg_reg/leg_reg_sta/files/PPS
_HKTA_HKIFA_April.2007__Clean.pdf

25. By Steven Tsoi
Wilson Pang

26. By employee himself
 Normal retirement: At age 65
 Early retirement: At age 60
 Total incapacity
 Small balance account of less than $5,000, no
contributions made to a scheme for 12 months,
and declared not to become employed or self-
employed within the foreseeable future

27. By personal representative of the
estate
 Death (note that the MPF will be regarded as part of
the member's estate and can be claimed by the
personal representative of estate)

28. Q3.13:The MPFA makes four
suggestions that people should
consider when identifying their
retirement investment
goals. What are they?

29. 1. Set clear investment goals
Work out how much you would need,
including all cost of living ,medical expenses
to live on annually after retirement. (consider
inflation to prevent underestimation)
You can live for as long as 20 or 30 years in
retirement, so take that into consideration
when setting your goals.

30. 2. Assess your own risk tolerance
level
 Factors e.g. age, personality, financial status of
yourself and that of your family would all have to
be considered when deciding how much risk you
could tolerate with your MPF investment.
 If you can take more risks, you can consider a
more aggressive investment portfolio which may
yield higher returns, thus allowing you to achieve
your goals sooner.

31. 3. Estimate your investment horizon
 The longer your investment horizon (i.e.
retirement is still a long way off), the higher your
risk tolerance level will be, and as such, the more
aggressive investment portfolio you can afford.
 Conversely, if your investment horizon is
relatively short, it will be more appropriate for
you to choose an investment portfolio with lower
risk, such as those that aim at preserving capital.

32. 4. Adjust your investment portfolio at
different life stages
Your MPF investment horizon could span tens
of years during which you would experience
different life stages and face many changes.
Reviewing and adjusting your investment
portfolio at appropriate times could facilitate
the achievement of your investment goals.

33. Question 3.14
What should employees consider when choosing MPF
fund?

34. When Choosing MPF Funds
Personal Profile
 What is your financial situation?
 How long until you plan to retire?
 What are your investment goals?
 What is your risk tolerance level?

35. When Choosing MPF Funds
Fund Profile
 What is the fund’s size and when was it launched?
 What are the funds’ investment objectives and
instruments?
 What is the fund’s portfolio allocation and top 10 holdings?
 How has the fund performed, in recent years and since
inception?
 What is the fund’s risk indicator?
 What is the fund’s fee expense ratio?
Source: www.mpfa.org.hk/english/mpf_edu/mpf_edu_laymi_uyn.html